125 - How Much Do Bike Companies Make? More shocking economics.

Ever wonder how much money bike companies actually make? In this episode, Josh breaks down the real financials behind the mountain bike industry — and the numbers might surprise you. Using publicly available data from Giant, Merida, and Shimano, plus a detailed cost breakdown of a $5,000 acoustic mountain bike and a $15,000 e-MTB, we dig into what bike brands actually pocket after all the bills are paid. Spoiler: it's a lot less than you think.

We also go deep on Shimano — why they financially outperform the other public bike companies, and what four Japanese business philosophies (Kaizen, Monozukuri, Keiretsu, and Genchi Genbutsu) have to do with their margins. Dane and Josh debate whether the bike industry needs to slow its product release cycle, and whether a more Shimano-style approach could actually make bikes more affordable in the long run. If you've ever complained about bike prices — or defended them — this one's required listening.

**EPISODE CORRECTION**: Merida reportedly acquired somewhere between 19%-49% stake in Specialized in 2001 (not in 2022 which we suggested in this episode).  Also, it's been reported that the their stake is ~35% today and that Merida agreed not to sell Merida bikes in the U.S. as a term of the deal.

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Transcript

April Fools Opener And Setup

Host - Dane Higgins 0:00

Fucking So, why was the frog late to work on April Fool's Day? I don't know. Uh his car got towed.

Host - Josh Anderson 0:30

Quick with that button.

Host - Dane Higgins 0:32

Quick with the button. I didn't say it would be good. His car got towed. His car got towed. It's April Fool's Day.

Host - Josh Anderson 0:38

It's April Fool's Day here at the MCP. Yeah. Sidney Dane's shop. We were supposed to start this podcast one hour and 47 minutes ago.

Host - Dane Higgins 0:45

Yeah, but you had to you had to like school me on what you've done for this podcast. There's like six pages of like insane work that you did on this. Like you spent like two weeks. I mean, it's just insane.

Host - Josh Anderson 0:56

Spent like half a day, but that's okay.

Host - Dane Higgins 0:58

Yeah, it's a lot.

Host - Josh Anderson 0:59

It's a lot.

Host - Dane Higgins 0:59

It is a lot.

Why Analyze Bike Brand Profits

Host - Josh Anderson 1:00

Well, um, I guess we'll just jump into it since we you kind of already mentioned it. Yeah. I didn't mention it. No. I didn't nobody knows. Nobody knows. We could be talking about anything. Anything. Anything. I have no idea. Well, what we are going to talk about, as you know, previously in a previous episode, we did uh we took a look at the sh the the financials of a bike shop. And we had a very unique perspective having Dane here in that um he owns a bike shop. Yeah. And so I went out and did some analysis and he came back and said, You're right, you're right, you're wrong. You're right, you're wrong, you're wrong, you're right, right, right, wrong, whatever. And we got a good perspective. And you guys liked that episode. It actually performed really well for us. Uh completion rate was up, the listens were up, it continues to people continue to go back to that.

Host - Dane Higgins 1:38

I think a lot of good info. It it I think it's interesting, even if you're not a bike person, like not in the bike industry, you know, but I got a lot of calls from bike industry people. Did you really? Yeah.

Host - Josh Anderson 1:49

What'd they say? Like what was their perspective like?

Host - Dane Higgins 1:51

Well, a couple of them were just like it's spot on. One guy argued with me. Uh he was kind of drunk though. Um and then he said that as I'm picking up my Doseckies lager here. Um, but for the most part, you know, a lot of people that listened to it were kind of like, I don't know, it was like the it's never talked about or something. Right, it's 10. You know, yeah. And uh What are you guys doing? Yeah, it wasn't a a scolding, it was more like thank you for finally saying something, you know, and and uh I didn't think about it that way. I just thought this is how it is. But like I said, in that episode, it it came from a lot of misunderstandings that I started to realize people have on what this stuff costs. Like I I hear all the time, uh, you know, the bikes are too expensive and they cost too much and we gotta bring the price down. And being in the industry, I kind of get how absolutely I would love to see that, but also see how hard it is. And uh this episode is gonna help with another perspective of that. So I'm excited about it.

Data Caveats And Listener Corrections

Host - Josh Anderson 2:46

Yeah, man. So um so what are we talking about? You know, when we put out that bike shop episode, bike shop financials, you know, what does a bike shop make? We got a bunch of comments back that was like, yeah, yeah, cool, everybody knows that bike shops don't make any money, but what do the bike brands make? And so we thought it would be interesting to take a look and try to figure out, at least directionally, um with public data that's out there, you know, what how what are these bike shops or what are these bike manufacturing brands, and in this case one component brand, like how are they performing? What kind of money are they making? Um and I'll start with some caveats, uh strong caveats. So some of the data that we're gonna talk about today, I have a lot of confidence in, and that's the data that's directly tied to the companies that are public companies that have to report their quarterly earnings and have all kinds of legal and statutory requirements to actually release their financials. That stuff is a matter of fact, and as long as they were honest in their financial statement, um that that data is accurate. So I have a lot of confidence in that. We have also um tried to like break down a couple bikes at a couple price points. Yeah, you can't do everything.

Host - Dane Higgins 4:02

Can't do everything.

Host - Josh Anderson 4:02

So we just we just picked two bikes. Two kind of price point examples. Yeah, we we picked like a $5,000 acoustic mountain bike and a $15,000 uh e mountain bike, and said, hey, if I broke down that five grand or that fifteen grand, like what are the buckets of cost in there? And so you can kind of get a figure, kind of get a feel for like what are the elements of cost that go into those bikes. Yeah. Um that we have, I think, a pretty okay or a moderate confidence level in the data. There was a lot of assumptions that were made, so it's not perfect.

Host - Dane Higgins 4:33

So one caveat for me is talking to you about all this data and just realizing there are very few publicly traded bicycle companies. Yeah. And that is a little like I was surprised. You know, there's not very many. And and so there are companies, there's lots and lots of companies everybody's thinking about that. If they're privately held, we don't have that data. We don't have that data. So a good example would be Shram.

Host - Josh Anderson 4:57

Yeah.

Host - Dane Higgins 4:57

Like huge company, but we can't get their data, it's private.

Host - Josh Anderson 5:01

Yeah, and and the reason why um Dane's mentioning Shram, other than the fact he's in love with Shram, is the fact that Shimano is a public company. Yes, and so you can get their data. We have a lot of data on Shimano. Yeah. Um all right, so so I also want to throw out there, okay, so we have kind of like moderate to high confidence level, and I'll I'll flag when we go through this, like what I'm confident in and what I'm like, hey, we this is an estimate I could be wrong. Okay. Regardless, let me throw this out there into the ether. If to any of our listeners, if we say something today or quote something today, and you're like, I know for damn sure that that's wrong, yeah, let us know. Yeah. And I will do one of two things. Depending on how egregious the oversight was, I'll either number one, put it in, I'll update our show notes with that correction. Okay. Or if it's really bad, I'll record a separate like addition to the end of the episode and and I can apply that to the end of the episode. Said, hey, uh we screwed up this. By the way, we've the you know, X, Y, and Z awesome listener corrected us. Here's the correction. So I will commit to you that if you get a hold of us, uh, the best way to do that is through that fan mail link in our show notes. Yeah. Uh you can also send an email to mountain cog at gmail.com, uh, or you can hit us up at any of our socials. Uh I guess Facebook for the old people and Instagram for everyone else.

Host - Dane Higgins 6:19

That's not true. I told you what it is. Facebook has pictures and words. Uh-huh. Whereas like Twitter used to be just words, and then Instagram's pictures. And so that's kind of what it is. It's not an age thing. Facebook is for grandparents. It's not an age thing. It's not. I'm on Instagram too. Oh yeah. And you know what I'm not on? Is like um Snapchat. Snapchat or what's the I don't know any of the other ones. I won't do um what's the other one that's really cool and I should do it. X. No, the the one that everybody dances on. TikTok? TikTok, yeah. Yeah. So Turner will send me send me videos all the time, and he's like, You didn't watch my video. I'm like, I don't have TikTok, bro.

Host - Josh Anderson 6:57

So just send it to him as an Instagram reel.

Host - Dane Higgins 6:59

Yeah, exactly.

Host - Josh Anderson 7:01

Okay, so we got moderate to uh to high level of confidence in this data. Yep. All right, so let me kind of first tell you like what I'm gonna tell you. And I'll kind of just like summarize the how this episode's gonna work. First and foremost, I'm gonna go through some of the public companies and uh just give some top-level summaries of what their financial statements are. And I looked at 2020 to 2024 because I get good data for those years. Some of the companies didn't haven't fully reported 2025, so I didn't include that. Okay. Um so we'll we'll it we'll talk about those companies, and I'll tell you who the companies are in a minute. Then we took a $5,000 bike and a $15,000 bike, and we um broke down all the different elements of cost to add up to $5,000. We'll kind of summarize and talk through that and debate that as we go through it.

Host - Dane Higgins 7:46

Yeah, I already have questions.

Host - Josh Anderson 7:48

Um then we're gonna talk about Shimano.

Host - Dane Higgins 7:50

Okay. Uh and because you love Shimano.

Which Public Bike Companies Exist

Host - Josh Anderson 7:53

Well, yeah, we're gonna talk about Shimano. And we're gonna talk about, you know, I think like I I've been obvious that I love Shimano. Everyone knows I got a Shimano hat, Shimano shirt, all kinds of stuff, whatever. Um part of the reason why I love Shimano is I'm I'm in love with like the Japanese philosophy around design, manufacturing, and business. We're gonna talk about their financials, and there's gonna be a big difference in the financials that Shimano has compared to the other companies. They're performing much better. Um and I'm gonna relay why, like some of the Japanese philosophy. I'm gonna explain four uh tenets to Japanese business philosophy that I think are contributing factors. There's other contributing factors, and I'll talk about those too. Um, but this is part of why I love Shimano, is just I'm I really like that Japanese philosophy. In addition to the fact that they make 80% bikes and I love their bike products, and they make 20% fishing and I love their fishing products. Nice. Okay. All right, so who are the five companies that I could find? There were five companies I could find in the bike industry that were have public data. Maybe there's more, and this is a good example. If you know of one that I didn't find, let me know. But let me tell you the five I found. Number one is Giant, number two is Merida. Okay. By the way, Merida owns 35% of specialized. Yep. Both Giant and Merida make frames for lots and lots of people. Yeah, they have their not just for their own companies.

Host - Dane Higgins 9:11

Yeah, they have their own bikes, but they're probably I would say 80% of the bikes produced are probably them.

Host - Josh Anderson 9:17

Yeah, I don't I don't I don't don't quote us on that because I I mean you're just you're just guessing.

Host - Dane Higgins 9:22

No, I'm I'm totally guessing. But uh you can quote me because I would say I don't know if that's true, but it's a large number.

Host - Josh Anderson 9:26

I'm pretty confident that it's pretty big. Yep. So Gina Marina, uh, and then Shimano was the third company. And again, Shimano's eighty percent bike, twenty percent fishing. And so I included the data on those three companies because they were primarily bicycle companies. Two other companies. Um uh Fox. Yeah, and it looks to me like about 20% of their stuff is like you know mountain bike related. Fox tail.

Host - Dane Higgins 9:54

Yeah, uh so suspension.

Host - Josh Anderson 9:56

Correct. Yeah. And then um the other one was uh CS.

Host - Dane Higgins 10:01

Yeah.

Giant And Merida Financial Reality

Host - Josh Anderson 10:02

Uh Shen Ch Chen Shing, which you guys might know by Max's. Yeah, or CST. Or CST. Yeah. And and again, only roughly 20% of their business is is bikes. So I excluded uh CS and I excluded Fox because such a small percentage of their business is in bikes. I didn't think it would be I could like give you guys good information there. Yeah. All right, so let's start with the manufacturers. Again, I looked from like 2020 to 2024. Okay. Uh in in all in all cases here, I think 2021 was the best year, performing year, and I think that makes sense because that's like when COVID was booming, right?

Host - Dane Higgins 10:41

Yeah, 2020 was kind of a baseline what it was before COVID, and then 2020.

Host - Josh Anderson 10:45

2021 was like everyone was buying bikes and we were going crazy.

Host - Dane Higgins 10:48

Yeah, we were running out of stuff.

Host - Josh Anderson 10:50

So at that time, giant just under $3 billion of revenue and a net margin of 7.7%. And 21? That's 2021. So that's the highest in the last four years or whatever. Three billion, it's it's like two point nine three, but fee three billion in revenue, seven point seven percent profit.

Host - Dane Higgins 11:11

Okay. And that's their height. So they're making in this window in the last four four or five years, yeah. They're netting seven point seven billion dollars. They're killing it at that.

Host - Josh Anderson 11:23

That's their like well, I mean that that's the highest they've had in the last four years. Okay, all right.

Host - Dane Higgins 11:27

Or five years. Okay.

Host - Josh Anderson 11:28

And then 2024, revenue down from three billion to about two point two. Okay. That's bad. But then also margin down, net margin down from seven point seven to one point eight.

Host - Dane Higgins 11:42

That's crazy. Because if you think about two, almost two and a half billion versus three, but you're going down to one point eight and six. Like five points of margin. Yeah, that is huge. That means that they were selling stuff at cost almost. Yeah. I mean, yeah. They were s still selling almost the same amount, but at cost, or at least the same totals, but at cost.

Host - Josh Anderson 12:04

So all right, let's go to the next one and we'll go to Marita. Um smaller company, you know, in this case, their big year well 2021 and 2022 had similar uh revenues, but it's about a billion dollar company in in 2021.

Host - Dane Higgins 12:24

Oh, that's interesting. So like one third are giant. Yeah. Wow. Okay. I thought they were bigger than that.

Host - Josh Anderson 12:30

Just somewhere around here they bought 35% of specialized, and I'm not exactly sure where so I'm not going to tell that in the story.

Host - Dane Higgins 12:35

I think it's in 2022 based on the Yeah, it would be kind of nice to kind of see where they did that. Yeah. And then um this 24 number, they did a huge write-off. Did you know that? Did your data give you that? So they did wrote off a ton of debt.

Host - Josh Anderson 12:48

Yeah, so that's why you see negative 0.8% margin. Okay. All right. All right. So then so when you say write off, they were actually not profitable.

Host - Dane Higgins 12:57

They lost money. And they basically, I guess, just get to a one-time write it off. Just say, hey, that's it.

Host - Josh Anderson 13:03

So they went from like a billion dollars and like 16% of margin, which is huge, way bigger than giant.

Host - Dane Higgins 13:09

Way bigger than giant. Yeah.

Host - Josh Anderson 13:10

So all the way down to about 0.9 billion in revenue, but a negative 0.8% margin. They lost money, a significant amount of money. I wonder what that looks like on a graph. We could graph it. I don't have it right now, but it's a big number.

Host - Dane Higgins 13:26

Because if they were so much higher, and then they came down, would their ending be close to where Giant was?

Host - Josh Anderson 13:32

So uh well, if it was negative, no. Because Giant was still positive.

Host - Dane Higgins 13:37

Yeah, that's true. Yeah, in three times the size. Okay, all right.

Host - Josh Anderson 13:41

So the next one we'll go to is Shimano. Um and we'll we'll save the actually how should we do this? Let's save Shimano for the end.

Host - Dane Higgins 13:55

Just because you want to talk a lot about it.

Host - Josh Anderson 13:56

I just want to talk a lot about Shimano.

Host - Dane Higgins 14:00

You're such a fanboy.

Host - Josh Anderson 14:02

I mean, I am a fanboy. No, cause because we're gonna have two Shimano topics and we should just join them together so that there's cohesiveness. Okay. So um let's talk a little bit about Giant Merida. So they are, you know, they giant sells their own bikes. Okay. They also have the Live brand, right? Yep. Um they sell them in the United States. Uh they also in their in their factories around the world um manufacture frames and components for I think components, maybe just frames.

Host - Dane Higgins 14:26

Oh, they do. They have the Cadence uh Cadex line of wheels, okay, which they're trying to build as their own brand or a brand standalone. And then they do a lot of OE working. But are they building other people's wheels? Uh yeah. Okay, yeah.

Host - Josh Anderson 14:39

So yeah, so frames and components. So they can many different brands in the industry. Yeah. Uh and same with Merida. And if you're in our US listener base, you may not even recognize Merida, but if you go to Europe, I guarantee you're gonna see Merida bikes all over the place. And there must be some kind of arrangement where they can't sell Merida bikes in the United States.

Host - Dane Higgins 14:59

I yeah, or yeah, yeah, you're right. Like because you never see them in the States, but you see them over there. And and they only acquired 30 plus percent on specialized recently.

Host - Josh Anderson 15:10

I think it was in 2022. Yeah. And and if we get a chance where you're actually talking on this podcast, I'll see if I can look at it. You're gonna do most of the talking.

Host - Dane Higgins 15:16

Um but uh I just know that um as far as that goes, it is weird that you don't see them. So uh that is kind of I you're right. There must be they must have agreements. So I wonder how many other companies they make bikes for, like if that's the bigger companies like Trek and other companies where you know they're just like, hey man, just don't put your bike in.

Host - Josh Anderson 15:36

At one point, this was pre-AI, if you remember a couple years ago, I started the analysis on uh where all the bike companies' frames were made. Yes and I've got a spreadsheet that's got that. Like what factory was it made in? Yeah. And so I know some of that. I never completed it. I spent many, many hours on that analysis.

Host - Dane Higgins 15:54

It gets confusing because uh I know for a fact Trek uses Merita. I I had to break out specific bikes.

Host - Josh Anderson 16:01

Yes, it wasn't just like all Trek frames go here.

Host - Dane Higgins 16:04

No, uh-uh. Like they may make their cruisers or kids' bikes in one factory and then their full suspension in another, and then they may make their road bike, you know, somewhere else, and and there's totally different uh places where they're going.

Host - Josh Anderson 16:16

So again, Giant went from 3 billion to 2.2 billion, 2021 to 2024, and from 7.7% margin to 1.8% margin. And Merida went from uh about a billion to 0.9 billion, but went from 15.8% margin all the way down to negative 0.8% margin.

Host - Dane Higgins 16:38

Wow, that's crazy. So same amount.

Host - Josh Anderson 16:42

Roughly the same amount of revenue.

Host - Dane Higgins 16:43

Same amount of yeah, total coming in. Yeah. So again, selling it below cost.

Host - Josh Anderson 16:47

I mean they well, yeah, some yeah, I don't know whether they sold below cost, but but something happened that caused them to be negative. And to be honest with you, I could go research that and that would be in their public filings. I just didn't. Okay.

Host - Dane Higgins 16:57

Yeah. Yeah. That's interesting.

Host - Josh Anderson 16:59

Or at least their explanation for it to to their to their street. Okay. Um, also, probably worth noting, um, you know, uh Giant and Merida, both on the Taiwanese, like the data was published in the Taiwanese um uh currency. Okay. And in Shimano was published in the Japanese currency, and I'm gonna try I would try to guess what those are, but I'm gonna screw it up if I do. Yeah. But I had them converted based on like yesterday's or day before's exchange rate to USD. Okay. So so we can have apples to apples. Yeah, yeah. That makes sense. So all right. So okay, let's so let let's talk about. Well, first of all, any questions about that? Did that surprise you? Make sense? Does that even mean anything to you?

Host - Dane Higgins 17:41

Uh I mean it was it was interesting seeing Meritas just about one-third a giant. I everybody knows giants giant, they're huge. Like, so so they make a lot of stuff, and their their vertical integration gives them a real um foothold, you know. So they own the mine, the the smelter, everything. So the aluminum, they're digging it, they're making it.

Host - Josh Anderson 18:02

Yeah, stoop to nuts.

Host - Dane Higgins 18:03

Yeah, all all the way. So that's kind of crazy. It's a it's a big deal. And Mr. Giant just passed away.

Host - Josh Anderson 18:09

Oh, did he really?

What A $5,000 Bike Costs

Host - Dane Higgins 18:10

Yeah. I didn't know there was a Mr. Giant. Uh I guess the guy who started it, yeah. So is his name Mr. Giant? I know. I can't remember what it was, but I'm sorry for your loss. But uh but he, you know, he was a key driver and and he wasn't a huge cyclist. You know, he started cycling late in life. Yeah. So that's the little trivia I know. So there you go.

Host - Josh Anderson 18:29

So Okay, so let's take um two different price points of bikes, okay, break them down into chunks, and see if we can um you know discuss uh like what are all the elements of cost that make up a five thousand dollar bike? What are all the elements of cost that make up a fifteen thousand dollar electric mountain bike?

Host - Dane Higgins 18:48

Yeah. Now, um your numbers I have issues with, but you put a lot of work into trying to find them out and you're confident in most of the things. It's like there's little things that can be moderately confident and are directionally correct, but they're not perfect. Yeah. And and so the big thing is we may be off a little bit, but the overall scheme is on top. Directionally accurate. Yes. Typically we're gonna do that.

Host - Josh Anderson 19:10

I don't know that term. I don't know. So it just means that like I know this isn't perfect, but it's close enough to get for you to get the point.

Host - Dane Higgins 19:16

Yes, yeah. It's not like okay, yeah. Okay. And that's I just want to throw that out there.

Host - Josh Anderson 19:20

So the first thing we'll talk about is cost of goods sold. Okay. Okay.

Host - Dane Higgins 19:26

And this is for the bike.

Host - Josh Anderson 19:30

Right, right. This is all about the the brand's costs.

Host - Dane Higgins 19:33

So are we talking in general or are we talking about just Marita and Giant? So the 'cause it's not Shimano, they don't make a bike.

Host - Josh Anderson 19:39

Right, right. So the data was grounded factually in what was publicly available from the publicly traded companies. Okay. But it was also augmented with anything we could find that was private companies where they released or talked about stuff. Okay. So you got bits and pieces of information that comes out from the private companies, you got a pretty good understanding from the public companies, lots of different sources and and lots of estimations. Again, not perfect.

Host - Dane Higgins 20:08

But it's kind of smoothed. It's smoothed.

Host - Josh Anderson 20:10

Okay, but to me it feels it feels pretty good.

Host - Dane Higgins 20:13

Yeah. I'm looking at some of the numbers and they're not far off because I know some OEM pricing, and I I'm looking at some of our high-end manufacturers. So like you have a carbon frame.

Host - Josh Anderson 20:22

Yeah.

Host - Dane Higgins 20:23

At the $5,000 trail, uh, you were putting that as about $500. Yeah, $475. And I'm like, uh, I think that's low for a company like Pivot, but probably high for a company like KHS or or or Kona. Yeah.

Host - Josh Anderson 20:40

And we just and Pivot doesn't really sell a $5,000 bike.

Host - Dane Higgins 20:44

No. Good point. Good point. So it's probably not the right data for that. So okay. Yeah.

Host - Josh Anderson 20:49

But if but Norco does.

Host - Dane Higgins 20:51

Yes.

Host - Josh Anderson 20:51

So exactly. Like maybe think about Norco in our example. Yeah, yeah. Just just to ground us in one brand. Good co. Okay. All right. So in a five for a $5,000 bike, you add up all the, and I'm not going to go through all the prices individually because then we'll get into baits. But if you add up all the cost of goods sold, let me just tell you what those things are. This is the cost of the frame and the hardware. This is the cost of the fork, you know, RockShock or Fox typically, also DVO and some other brands, Manitou. The cost of the shock, the cost of the drivetrain, the wheel set, the cock cockpit and dropper post, the tires, the cost in the factory for labor to assembl it, and then the cost of packaging freight and import duties. Add all that stuff together for a $5,000 bike. It's rough a $5,000 bike, it's roughly two grand.

Host - Dane Higgins 21:39

Okay. So that would be their cost of goods sold.

Host - Josh Anderson 21:42

Cost of goods sold. Okay. So then you're like, oh, okay, cool. Well then they're making $3,000. Doesn't work that way. No. There's more.

Host - Dane Higgins 21:49

Yeah. Well, that's their cost. That's their cost of goods sold. So they haven't made any money. No. So they're not making three thousand dollars or whatever. I mean if they sold it for five thousand. Okay. Okay.

Host - Josh Anderson 21:58

Up to five thousand rate. Okay. So the next thing we have to look at is what I'll call the brand operating cost. Okay. So you got things like research and development. This is kinematic design, geometry, mold tooling, prototyping, all the RD stuff. You've got marketing, things like events, content, athlete, athlete sponsorship, you know, whatever you see in the dirt rag or whatever they pay Pink Bike, or whatever YouTuber. Or whatever they're going to eventually pay us to be an advertiser on the Mount Pack podcast. If we ever sell out.

Host - Dane Higgins 22:32

I'll totally sell out. Just for all the brands right now, just so you know, we'll sell out. I don't know that we will. We'll sell out. I'll sell out. It's going to have to be a lot of money. I mean, I'll tell people. Like if you tell people, it's not. What is our integrity worth? Uh lots.

Host - Josh Anderson 22:46

Yes, that's exactly what I'm saying. Yeah.

Host - Dane Higgins 22:48

But that but that means you have a price.

Host - Josh Anderson 22:50

We have a price. Yeah. That's a good statement. We have a price. We have a price. Call us if you want to talk about that price. There's a joke there.

Host - Dane Higgins 23:00

There is a joke somewhere. It's like, would you have sex with me for a dollar? And they say no, right? Yeah. And then you go, Would you have or no, would you have sex with me for a million dollars? And they're like, sure. And they're like, would you have sex with me for a dollar? Right? And they're like, no. And like, and you're like, well, now we just have to dicker over the price. We know what kind of person you are, but we just have to dick over the price. Something like that. I can't remember. Bicker. Dicker. Dicker. Bicker. Bicker. Oh, bicker?

Host - Josh Anderson 23:27

Bicker over the price.

Host - Dane Higgins 23:29

Negotiate. Yeah, but you dicker. Oh man. I'm not even going to go there. I'm going to have to look that one up. So. Okay. All right. Back on track.

Host - Josh Anderson 23:37

All right. So we're going through brand operating costs. We talked about RD. We talked about marketing. The next thing is warranty reserve. Yes. So they have to reserve some percentage of the value of that bike to cover warranties because they're going to have some.

Host - Dane Higgins 23:49

Yep. Right? Yep. Yeah, they're required to in the states anyway.

Host - Josh Anderson 23:52

So they have to pay their sales reps and their dealer support teams, and then they have their own brand overhead. Things like facilities, staff, administration, all that kind of stuff. So you add all that stuff up as it gets amortized across all the bikes they sell. And it's about, and you can assume it's about a thousand dollars of cost per bike. Per bike. Yes. Right? Okay. So we got $2,000 for cost of goods sold, $1,000 for the brand operating cost. Now, if you want to go back and we can bick around the percentages here, but the other big element of cost is is the profit, the gross profit that the shop gets that sells it.

Host - Dane Higgins 24:32

Okay. All right. Another gross profit. Okay. Right?

Host - Josh Anderson 24:35

So this is before all you all your shops' costs and everything, and we already went all through that in a previous episode, so we don't need to rehash that.

Host - Dane Higgins 24:41

No. But this is on par with that.

Host - Josh Anderson 24:43

But this is on par with that. We've got 35% here.

Host - Dane Higgins 24:46

Yeah. Like so. And 35% is high. It's high. We talked about that's kind of high. And then but it is maybe the starting. And that's the big caveat that you were talking about. The the other episode brought out is that the margin on the bike depends on the quantities that you buy always actually end up being the margin. But when the sales reps come in and sell me a bike, they're talking about this margin. Yes. And then then when we add in all our costs, it shrinks.

Host - Josh Anderson 25:10

Yeah. So this would be, yeah. This is your gross margin. Yeah. But then you got to bring in all of your operating costs, which gets you to your net margin. And that's the actual cash that you can take home. Exactly. Yep. Yeah. All right. So this, you know, of that $5,000 bike, $1,750 roughly. Okay. For for you. Okay. And that covers all your cost and a little tiny sliver of take home money for you.

Host - Dane Higgins 25:34

Yeah, yeah, exactly. Yeah. So we don't get $1750, just like they don't technically get $3,000. $3,000, yes, exactly.

Host - Josh Anderson 25:42

So what's left over is about $300 of net income bike that the bike company makes on a $5,000 bike is about $300.

Host - Dane Higgins 25:56

Okay.

Host - Josh Anderson 25:56

Or somewhere between $6.5 and 7.5%.

Host - Dane Higgins 26:00

Okay. So if the if the if that bike company wanted to make a $300,000 net income for the year, they would have to sell it.

Host - Josh Anderson 26:12

Oh, you're going to ask me to do math in public now?

Host - Dane Higgins 26:15

Yeah, I just tried to do that math in my head, my my brain broke. So if it's $300,000. A thousand bucks. Thousand bikes.

Host - Josh Anderson 26:22

Okay. So that's the thing.

Host - Dane Higgins 26:22

Three hundred times a thousand, I think, is three hundred thousand. And if you think about how much a bike company may actually profit, that's okay. I get that. You know, if if if a trek or a specialized is making they're selling more than a thousand bikes a year. Yeah. Right?

Host - Josh Anderson 26:36

They must be, because we saw what their profit margins were. And and their total revenue.

Host - Dane Higgins 26:41

Yep. Yeah. Yes. Yeah. And their um and their uh that 300 is the net. And that's that's after they've paid their employees, paid for their rent, their utilities, things like that. Yep.

Host - Josh Anderson 26:54

Okay. Yep, yep, yep. Okay. Now um I said that they make about six point five to seven point five. Like what the analysis shows is that six point five is more on the acoustic bikes, that seven point five is more on the E mount bikes.

Host - Dane Higgins 27:06

So they're making more on the E-mounts.

Host - Josh Anderson 27:08

Well, I think so. Is it percentage? Percentage. A little bit more percentage. Yeah. Um and we can debate that, but that's that's at least what I've seen. Yeah. Okay, so let's let's break down now. I mean, any does anything does that surprise you or any aha's there? I mean, the fact that they're only making about 300 bucks for a $5,000 bike, like I wouldn't have guessed that.

Host - Dane Higgins 27:29

At first, it was I was like, no way, that can't be right. You wouldn't stay in business. Um and then I started uh Think about volume. Well, you think about volume, and you also have to think about that as like the leftover money after after everyone's been paid, everything's been paid. Yeah. And so that literally goes to the.

Host - Josh Anderson 27:48

So there'll be people in the industry and be like, that's not what we make. I know for sure. And I'll and I'll challenge them and be like, you don't know what your operating costs are. So you don't know how to amortize it.

Host - Dane Higgins 27:56

That is probably one of the hardest things. Right. One of the hardest things to like nail down. People kind of have this idea that you just know exactly what you're gonna make. And I'm like, no, you don't because shit changes. Like if it's really hot, my my AC bill goes up of you know a hundred bucks on a month. And if it's really nice out, it drops, you know.

Host - Josh Anderson 28:15

And if it's like that can affect your monthly and then every time we do a podcast, you end up with like another thousand bucks of revenue because I buy stuff from you.

Host - Dane Higgins 28:24

That's true. Yeah, that's true. Except for tonight, you haven't sold me anything yet, but tonight's not over yet. That's true. Yeah. We got plenty of time. I got a lot of shiny things. You do.

Host - Josh Anderson 28:31

You do. And I I have like that's why I took my glasses off, so I can't see anything. Just don't look at it. Don't do it.

Host - Dane Higgins 28:36

Don't look.

Host - Josh Anderson 28:36

All right.

Host - Dane Higgins 28:37

Um so yeah, it it took me a while to go, okay, that and then by multiplying it by a thousand.

Host - Josh Anderson 28:42

Or or more it's actually way more than a thousand. It would have to be to get to the billions of dollars of revenue that we saw.

Host - Dane Higgins 28:49

Yeah, but that is reasonable because I can imagine a trek or a giant or a uh um specialized selling ten thousand bikes. Or I don't know if they sell a hundred thousand. I th that's something I don't really know.

Host - Josh Anderson 29:02

We could probably I could probably look that up. Yeah, how many at least for the public bikes, I bet you that's I bet you that can figure it out find out some of that.

Host - Dane Higgins 29:07

Yeah, because I know Pivot doesn't sell as many, right? They're a smaller people don't realize it's a much smaller uh operation. Yeah, but I mean Trek is huge, you know, and and so specialized. So okay.

Host - Josh Anderson 29:19

All right, so yeah, I don't have a good idea of how what the volume. I mean, I can see the sales, and you gotta keep in mind with Giant Marina, though that revenue is not just their brand, it's also revenue from the frames that they're selling to other bike companies.

Host - Dane Higgins 29:32

Yeah, okay, yeah. And that's true, yeah, yeah. So they're well, yeah. And and if they're doing wheels or whatever else, but for them, their product is the frame, right? And so For that part of their business. So how would you factor that in if they're selling just a frame to somebody? Is that I didn't do that analysis. Yeah.

Host - Josh Anderson 29:49

But that's why I said consider NORCO as like a good company to do that.

Host - Dane Higgins 29:52

Or you could pull out this 475, like you you pulled out for the 5000 frame and you're yeah, yeah.

Host - Josh Anderson 29:57

So for them, the profit on the frame, you talk about the benefit of them being vertically integrated. They're not so so there's something called fee on fee, yeah. Where if you're buying from a supplier, they're taking a profit, and then you're integrating it in, then you're also taking a profit. Yeah. So when you vertically integrate that and you make your own frames, whatever the percentage of that frame cost that's a fee, you know, assuming that your operations are efficient and all that stuff and you're doing a good job, you can take that off. So maybe their cost for the frames a little bit less.

Host - Dane Higgins 30:27

Yeah. Okay, that makes sense.

Host - Josh Anderson 30:28

Because it's all vertically integrated.

Host - Dane Higgins 30:29

Yeah, and and and if they even uh like if they if they have their businesses separated and uh Schmelting Company has its own LLC, that's not how it works, but let's say they do that, then the aluminum extrusion company buys the aluminum, you know, realistically it's all integrated.

Host - Josh Anderson 30:46

Yeah, I mean now you're talking about tiers of a supply base, and we could get really deep into that. And I actually want to do that episode to break down Dude, we'll lose so many people, they'll just start sneaking. We didn't think they would like the bike shop one, and they did. Yeah. So this is even a little dorkier. Okay, let's get back on track. Let's get back on track because I scored. Thank you for bringing this back on track. Yeah. Okay, so we broke down the $5,000 bike.

Host - Dane Higgins 31:08

That was $5,000 trail non-e-bike.

Host - Josh Anderson 31:11

And we said two grand, two grand for cost of goods sold, a thousand bucks for brand operating cost, uh $1,500 for the shop gross profit, not net profit, but gross profit. And then they pull out like $300,000, $325 net income.

Host - Dane Higgins 31:28

Real quick squirrel. So the bike shop, the dealer network that that's selling these, they're getting that $1,750. Yep. Um if you sold direct, that would stay with you, and that's why it's a PC.

Host - Josh Anderson 31:42

But but that brand operating costs, uh-huh, those go up. And then Because all the stuff that you do, okay, the shop does, they have to now do.

Host - Dane Higgins 31:53

Yeah, they have to hire more people.

Host - Josh Anderson 31:55

So their operating costs go up, and the question is is where's the balance?

Host - Dane Higgins 31:59

Yes.

Host - Josh Anderson 31:59

Is it is it cheaper for them to have you sell it, or is it cheaper for them to sell it themselves? And so and when we talk about their strategists are doing that analysis, I'm sure.

Host - Dane Higgins 32:08

In that episode we talked about direct to consumer, that's when we realized where that that model starts to fail is when the cost of that goes up higher than it would be to just have a dealer.

Why A $15,000 E-MTB Costs More

Host - Josh Anderson 32:19

Yeah, it was I mean, we we I don't want to rehash that episode, but one of the big things was I just want to link this stuff so people can't. It's all it is all. But it was customer acquisition cost went way up when like Facebook and all those guys changed their rules. Remember that? We start charging more. Yep. Yeah, yeah. So we don't have to rehash that episode. But if you're interested in in the direct to consumer, go back a few episodes. We've got a good episode that breaks that down. Yep. Okay. Okay, back to this. We took we broke down the $5,000 carbon e-mountain bike or carbon acoustic mountain bike. Let's go to a $15,000 carbon e-mountain bike. Okay. Same categories. Yep. We'll start with cost of goods sold. And all the same things, but there's a couple extra things as you can imagine. There is a motor, there is batteries, there is software, there is a more robust frame that all that stuff's put into because would you say that the $15,000 bike has more and it has nicer stuff on it and that costs more? Uh yes. Right? Yes, which is the reason why you see the component costs are higher for the $15,000 bike, because it's a higher spec. Yeah, higher spec. Yep. Okay. All right. So for a $15,000 bike, the cost of goods sold, about five grand. About five grand.

Host - Dane Higgins 33:32

Okay. So one third.

Host - Josh Anderson 33:34

For a $15,000 bike, brand operating costs, about $1,500. Okay. So why is it more? My hypothesis. You're doing more RD because now you got a motor and software and batteries and you didn't have any of that. So you're paying more for RD.

Host - Dane Higgins 33:50

So you so you do you feel like because it's a higher end product that they have to put more time into it to just make sure it's perfect? Or it's so if I'm selling acoustic bars.

Host - Josh Anderson 34:00

Or is the material cost more? Well, okay, so yes, yes, yes, and yes. Okay, all right. But really what I'm talking about is there are things on an electric mountain bike that don't exist on an acoustic mountain bike. I don't have to invent or design a battery. I don't have to invent or design a motor, or or or pay someone else to do it. Okay. I don't have to event or design or integrate in electric controls and software and a screen and all that.

Host - Dane Higgins 34:23

So all of those that added cost, okay.

Host - Josh Anderson 34:26

Additional RD. Okay, gotcha.

Host - Dane Higgins 34:27

Okay.

Host - Josh Anderson 34:28

There's also, because it's a higher priced bike, a higher percentage of warranty that is reserved. Right.

Host - Dane Higgins 34:34

Or a higher cost of warranty.

Host - Josh Anderson 34:36

Higher cost of warranty. I also believe there's some higher costs in their overhead because now you're doing things like storing hazardous materials, so true. Shipping hazardous materials, all that kind of stuff.

Host - Dane Higgins 34:48

Yeah. So um every time we get a package, I think I've talked about this, every time we get a package that has some sort of lithium ion in it, even if it's small, like a little Knight Rider light with uh that in there, the package has to be designated, it has to go through a different process, all of that costs more money. It's getting better, but it all costs more money.

Host - Josh Anderson 35:05

So, you know, I'm talking rough numbers here, roughly five grand for the cost of goods sold, fifteen grand for the brand operating costs, about five grand for the dealer, and what's left, about a thousand. Okay. Is or maybe a little bit more than a thousand, like twelve hundred. I'm kind of really estimating all my numbers, aren't adding up. I've got all the exact numbers, but I don't want to bore you. I'm just gonna go.

Host - Dane Higgins 35:27

So they were making almost or a little over three hundred. Now they're making a little over a thousand. Over a thousand.

Host - Josh Anderson 35:33

All right. Over a thousand bucks they make in net income on a fifteen thousand dollar mountain bike.

Host - Dane Higgins 35:38

Okay, and that's again paying for everything. Yep. So about seven point five percent. So if they had a thousand of each of these bikes, a thousand e-bikes is more profitable.

Host - Josh Anderson 35:49

Yeah.

Host - Dane Higgins 35:49

Uh but you've got a lot more money hanging out in the wind until they sell.

Host - Josh Anderson 35:54

Yeah, I mean, it's interesting when you say profitable, are you talking percentage or profit dollars? Because if you're extending if they're the exact same percentage, but you're selling a more expensive product, then 7.5% on a $15,000 product is a lot higher than 7.5% on a $5,000 product from the number of profit dollars coming in.

Host - Dane Higgins 36:13

I think it's at the end of the year, how much is in your bank? And so if you use and and so if you use the unit cost, the the e-bikes are gonna be better, but you're exposed with how much money you have out there. So how much you have to put in is way higher. And and they call that cost of money. Yeah.

Host - Josh Anderson 36:30

Uh and so and then how how many can you actually sell? Yeah. Like I think there's a lot, probably a lot more $5,000 bikes just in general sold than there are $15,000 bikes. Because there's not, I mean, let's be honest, $15,000 bikes, shit, that's like almost what I paid for my truck.

Host - Dane Higgins 36:46

Yeah, yeah. No, it's true. It's never paid anything close to that to ask. I sold one the other day and it it it blows my mind a little bit. Um, but it's it yeah, it's really hard to, you know, I I hate comparing it to motorcycles, but when you think about side-by-sides and motorcycles and and some of the other things that you do outdoors to have fun and in all this time, and then we did a little bit of talking about golf, same thing. Yeah, it's not as crazy as when you just go like you think back when you were a kid and kids were riding around the $300 Huffee or $100 Huffy. Yeah, I was gonna say if you had a $300 Huffy, you're in a huffy. You were big pimping. Yeah, yeah. It was like it was like a diamondback or a mongoose, right? Back then.

Host - Josh Anderson 37:30

Something sweet.

Host - Dane Higgins 37:31

And uh so, like, yeah, it is crazy to think that's what we grew up on, and now we're riding these machines that are costing as much as a car, and they don't have all that intricacy. Like, think about that. There's no stereo on my bike. Like, I don't have cup holders. Well, that's not true. I guess I have bottle cages, but uh, I don't even get the bottle cage with the bike. So have to buy it separate. So, okay.

Host - Josh Anderson 37:53

All right. So so all of that leads to one of our big takeaways is that the bike brands are earning less per bike than I think most people think.

Host - Dane Higgins 38:03

Yes. I I think I think that's true. And I and uh, you know, I I listen to the forums and people talking, I listen to a lot of YouTube presenters, a lot of people out there, and they're like, oh yeah, it's just bikes are just crazy out of control. And I'm like, because I'm in the industry and I have a slight idea of this, yeah uh and I have a working knowledge of what OE costs are and things like that, I'm like, well, you know, it's really hard. Like I a brand manager for a bike company will take a bike that they're building and they will stress over what grips to put on it because if they save 50 cents or a dollar or two or a dollar, yeah, it will make a bottom line decision. And a big difference in the big difference, yeah. And people are like, why didn't they just put you know, man, I'm trying to think. Yeah. Why didn't they put the new one-up grips on it? Yes, whatever. Yeah, or or you know, why why do they put bond trigger grips instead of like some other grip or you know, and it's I'm like on a truck bike. Yes, on a trek, you know, and it's like because they're controlling the cost better on that bond trigger, yeah, you know, and and so yeah, it is kind of crazy. Or, you know, like um, why why did I spend 10 grand and get aluminum wheels on the bike, you know?

Host - Josh Anderson 39:12

Right.

Host - Dane Higgins 39:13

And I'm like, you don't understand how much more that frame was than maybe the competitor.

Host - Josh Anderson 39:17

Yeah, you know, yeah, and so uh Yeah, and it was interesting as we were looking at this, breaking it down, I'm slowly turning Dane into a strategist. I love it. We were just joking about that earlier. Yeah, and he's turning me into a bike shop owner slowly as well.

Host - Dane Higgins 39:29

Well, well, at least at least helping you gain an appreciation of like how passion-based this is, and and oh yeah, this carries into the bike company.

Host - Josh Anderson 39:38

A hundred percent.

Host - Dane Higgins 39:39

These guys are doing this because they love it. Yeah, and they're doing it because they they just love the sport and they're willing. And so you can imagine when you went and did your costs and you're and those people are being paid, they are not being paid. There's engineers in the bike industry that are making what I don't know this.

Host - Josh Anderson 39:55

Yeah you're gonna you're gonna guess on numbers. We don't know this. No, I I know some of this because I know these people I'm just just for the record, I did not study this, so I don't know this.

Host - Dane Higgins 40:03

I can tell you there was an article, I can't remember if it was Mountain Bike Action, uh, but they did go through of the where some of the did a survey on how much people were making.

Host - Josh Anderson 40:12

We could probably go back and look at that survey.

Host - Dane Higgins 40:14

But this was before that. This was uh an actual printed magazine, and they went through and they went through most of the big companies.

Host - Josh Anderson 40:20

Must be accurate then.

Host - Dane Higgins 40:21

Where where it was in paper. Uh you couldn't just delete that shit. You can't just go cut and delete. Um, but anyway, uh these it was uh an article about where the engineers came from and what industry they left to be in the bike industry, and it gave a breakdown of kind of what they used to make versus what they make now.

Host - Josh Anderson 40:39

Do you remember what the what the percentage drop was?

Host - Dane Higgins 40:41

I mean, this was like 20 years ago, so yeah, but just percentage should be about equipment. Oh, the percentage was like huge. Like they would make a hundred thousand as an engineer back then and go into the bike industry and make fifty thousand, yeah. Like fifty percent. And uh, you know, and and these are just base level engineers, they're not like head engineers or anything like that. And uh that's old info and stuff, but it's it's definitely passion-based.

Host - Josh Anderson 41:02

Yeah, I mean you look at the margins they're making, it kind of makes sense.

Host - Dane Higgins 41:04

Yeah.

Host - Josh Anderson 41:05

All right. Um so bike brands uh earn less per bike than you would probably think.

Shimano Margins And Market Power

Host - Dane Higgins 41:10

Yeah, yeah.

Host - Josh Anderson 41:11

I would like to spend a little bit of time talking about Shimano, and I want to caveat any of the numbers that we talk about with Shimano in that um they're performing better. They're public company, so I can see them. 80% of their business is bikes, 20% is fishing. The numbers I have are a composite of everything. So it includes the 20% fishing. Okay. Um, I didn't deep dive into are the fishing margins way higher or anything, so I don't know. Yeah. But um everything I'm seeing, even though Shram's a public company, that Shram is doing well at the same time. Shram's private. I'm sorry, even though Shram is a private company, yeah, that they are also performing well, although I don't know that they're performing this well.

Host - Dane Higgins 41:56

Yeah, and and that's the caveat, by the way, to your info is you're using public available data and these private companies like Shram or I can't see it. You can't see it. Like Trek. Trek would be a brand. You can't see that. And so you you I mean, I could guess you can't analyze it unless you called them up and they opened their books for you.

Host - Josh Anderson 42:12

In Damon will attest.

Host - Dane Higgins 42:13

Yeah.

Host - Josh Anderson 42:14

Every single bike company or brand that we talk to, if we get up to someone high, yeah. Oh, yeah. I started drilling him on what his financials were and he wouldn't tell me shit. Well, and and Or he would tell me, but he would say you can't publish this.

Host - Dane Higgins 42:27

Yes, yeah. And also to his credit, they don't always know. Like, you know, like it's not always a company, you know.

Host - Josh Anderson 42:35

I get that, but it's not if you don't know, you should not be the CEO of a company.

Host - Dane Higgins 42:38

I'm sorry, baby. I'm just saying they don't know the nitty-gritty. They don't know. They know they don't know every single he can't go quote you.

Host - Josh Anderson 42:45

He could quote me every number.

Host - Dane Higgins 42:47

We gotta send this to Brian and see what he says.

Host - Josh Anderson 42:49

Oh, yeah, that would be interesting.

Host - Dane Higgins 42:50

I think it'd be great to just talk to him.

Host - Josh Anderson 42:52

Yeah, Brian, I know I know you listen to our podcast occasionally, maybe you listen to them all.

Host - Dane Higgins 42:56

Yeah.

Host - Josh Anderson 42:56

Uh hit us up, and if we're like way the frick off on this, uh let us know.

Host - Dane Higgins 43:00

Yeah, it'd be a whole nother uh broadcast that we could do is how we got it wrong. Yeah, no.

Host - Josh Anderson 43:05

We could go up to pivot if you want, if you guys are willing, and and you can tell me why we're all screwed up here.

Host - Dane Higgins 43:10

Yeah, it's true. So okay, so we're on key takeaways.

Host - Josh Anderson 43:14

Key takeaways. Well, uh, so I'm talking about Shimano. Okay. And I just want to say like I don't have Shram's data, but I as I understand it, Shram is also performing better from a from a net income perspective, but I don't know for sure.

Host - Dane Higgins 43:27

And I I I feel like because these two brands are the majority of what's on every bike, yeah, for the most part, um, they just they have a huge I mean they're they're 50% market. If you just split it down the middle, okay. 50% of the bike's gonna be a good thing. This is something we're gonna talk about. Yeah.

Host - Josh Anderson 43:44

Who w who do you think has one of these two companies has 70% of the market for mid and high-end bikes?

Host - Dane Higgins 43:56

Uh so if I if I was gonna say who has the most high-end It's gonna be shram. 70% of the market for mid and high end bikes. So I would say shram.

Host - Josh Anderson 44:04

Which is basically like everything in your shop.

Host - Dane Higgins 44:06

In our shop, which is shram. Yeah. Like almost everything. It's Shimano. No way. Yes. No way. Think across the world. Yes. Okay. All right. Not just not just in it. What do you call in mid to high? Like what is mid to high? It's everything in this shop. Okay. So Dior would be mid. Oh, never mind. No, no. Okay. So see, that's why we don't agree. Because mid would be like XT.

Host - Josh Anderson 44:31

No, that's why I'm seeing XT. That's why I'm level setting you to my to high. That's why I'm level setting it. Because there's a whole bunch of other component stuff that's way below that.

Host - Dane Higgins 44:40

Yes. That starts to do that.

Host - Josh Anderson 44:41

I would say even Qs would be in this mid-category.

Host - Dane Higgins 44:44

No, yeah. Okay, then I would I would agree with you because Shimano is dominating the open you agree with me.

Host - Josh Anderson 44:49

This is just a fact. It's 70% of the market.

Host - Dane Higgins 44:51

I know, but I guess my mid to me is a is a $1,000 group and high is a $1,500 group.

Host - Josh Anderson 44:59

Yeah, I know we have to Okay. So that that's if you look at the entire bike market, mid is anything in a bike shop, and below that is shit you find in Walmart.

Host - Dane Higgins 45:10

Yes. Right. Okay. All right. So yeah, I would say that, yeah, totally. I I agree with you then. Yeah, absolutely. Yeah.

Host - Josh Anderson 45:16

70%, Shamal.

Host - Dane Higgins 45:17

I think you're totally misleading the R.

Host - Josh Anderson 45:19

I'm not trying to, so thank you for helping me make sure that I'm clear in my words. Because I'm not that's not my intent to mislead.

Host - Dane Higgins 45:25

It's really tough because we are a different market. Like if you're a mom and pop and you're selling like $300 bikes, it's totally different than here. So okay.

Host - Josh Anderson 45:33

You're talking about the value of like an Altus.

Host - Dane Higgins 45:35

Yeah, well, like you know Sarah. Low end to me is Altus and Dior. And that's low end. Dior's not low end anymore. Yeah, that's not low end anymore. To me it is. Yeah, but it is not. And it's not because it's bad stuff. It's just at the lower the the cheapest bikes in our store have those things on them. And the most expensive bikes have Shram on them. And that's that's not, you know, picking me picking. I didn't make these bikes. You know, that's if if I look at a top line bike now, very few uh they're starting because Shram DI2. DI2. The nude wireless D. D.I. two has has has vaulted Shimano back up into the high end. Yeah.

Host - Josh Anderson 46:14

But before electronic.

Host - Dane Higgins 46:16

Well, electronic is always the high end.

Host - Josh Anderson 46:18

Yeah.

Host - Dane Higgins 46:18

They don't I mean that. Right? Yep. And so like electronic Dior is mid to high.

Host - Josh Anderson 46:25

Yeah.

Host - Dane Higgins 46:25

Does that make sense? Yeah. So Okay.

Host - Josh Anderson 46:29

Sorry. Let's talk about Shimano's financials here.

Host - Dane Higgins 46:33

Okay.

Host - Josh Anderson 46:33

And we've been using 2021 and 2024, so I'll stick to that.

Host - Dane Higgins 46:38

Just because you've got the high point 2022?

Host - Josh Anderson 46:40

So I'm kind of picking the high point, which is like COVID was COVID high, so it's not it's not realistic.

Host - Dane Higgins 46:45

2024 is the latest data I have. Which is m getting closer to normal. Yeah, maybe. That makes sense.

Host - Josh Anderson 46:50

Yeah, yeah. I mean that actually if you think of 2020 as normal, that makes sense too. Okay. So about five billion in revenue for Shimano. Okay. At a this is in 2021, at a 21.2% net margin.

Host - Dane Higgins 47:05

Yeah, their margin is crazy.

Host - Josh Anderson 47:07

So and then uh 2024, 3.1 billion in revenue and a just under 17% net income.

Host - Dane Higgins 47:18

How do you how do you think Shimano's gonna take to this? Because if I was one of those people on YouTube that's complaining that all bikes are expensive and I used your numbers, uh huh, the company I'd go after is Shimano. Well, okay.

Host - Josh Anderson 47:34

Like if anyone had marginal All right, so that you are setting me up so perfectly for the next section. All right, go for it. Okay, go for it. Because do you think that the Shimano stuff is overpriced?

Host - Dane Higgins 47:46

No. And in fact, I don't think it's overpriced. I think it's a really good price. That's great.

Host - Josh Anderson 47:52

So I feel like when I buy Shimano stuff, I'm paying a fair value. As a matter of fact, I feel like I'm paying a better price than some equal stuff for other companies. And we actually, by the time this one is published, we would have published our other one that talks about low-end drivetrains, or what we would call low-end drivetrains, which in our last analogy would be mid-day mid-end drivetrains.

Host - Dane Higgins 48:09

But that's why I get confused. Yeah, I know, I know. Okay.

Host - Josh Anderson 48:13

So um the Japanese do things differently. So so first and foremost, if you have a dominant market position, which we just established that for the stuff in this bike shop across the world, Shimano does. Okay. 70%. Okay. That you have advantages of things that you can do with pricing, with volume, with OEM negotiations, because you have a more dominant position in the market. You control more of the market yourself. Okay. Shram and the others are in a back are are in the back seat. Well, we don't know, to be fair. No, in this case, I do know. Okay. 70% of the market is controlled by Shimano.

Host - Dane Higgins 48:52

Okay.

Host - Josh Anderson 48:52

All right. I don't know what Shram's financials are.

Host - Dane Higgins 48:54

So so the I just have to I have to nitpick a little bit because 70% of the market is this, uh-huh, but that does not mean that that 70% is more profitable than the 30%.

Host - Josh Anderson 49:06

Correct, correct. I don't know. I don't know. I don't know what Shram could be making 200% profit. I don't know.

Host - Dane Higgins 49:11

If their profitability is higher, even though they have a smaller margin, they could be on par. Now, because we don't know, they could also be making 10%. Which I think is probably which is what you expect. Which is what I assume is where they're they're they're below Shimano. And since I don't have a uh a bias like you do, I just have I feel like I have to defend them a little bit. You always do. Um but that doesn't mean that I I like them more than Shimano.

Host - Josh Anderson 49:38

I know, you always say that.

Host - Dane Higgins 49:39

I I have to sell them both.

Host - Josh Anderson 49:40

And I just say what's on your bike.

Host - Dane Higgins 49:41

Yeah. Ah, that's gonna change. I'm just saying. I love it. It's gonna change. And I now have rock shock forks on every one of my bikes. Yeah, I feel like, you know, uh I feel like being uh loyal to a brand can can be um what do they call it to spite your face? Detrimental? Yeah, like it can be detrimental. It you you want to be loyal to what you want, and then if a brand offers that better than another one, you should be, I think an enlightened person would be willing to to do that. And I think that's where listen, hey man, you told me, Josh, try this Zeb.

Host - Josh Anderson 50:17

Yeah, and I was like, God damn it, Dean. Okay, and I tried it and I was like, oh yeah, this is amazing. Oh my gosh. Yep. As soon as you put that 3.1 and the buttercups in, I was like, oh my god, and then you got all upset because it's a shramp product. You're like, oh shit, this is so then I won one and put that pike on my in the so I thought maybe it's because it's an e-bike and it just feels planted.

Host - Dane Higgins 50:40

Yeah, don't get me started on planting.

Host - Josh Anderson 50:42

I was riding my e-bike last night and I was like, man, this feels planted. I almost stopped and called you and be like, my bike feels so planted, dude.

Host - Dane Higgins 50:48

Planted is such a bullshit term. So it's not. It is, it is not it is so bullshit. Absolutely not. It's I will I'm gonna have a shirt made.

Host - Josh Anderson 50:55

But okay, so planted means heavy. So I so the first Zeb came on a bike, then you upgraded it. The second rock shock fork was the pike I won.

Host - Dane Higgins 51:04

Yep. Thank you.

Host - Josh Anderson 51:05

I I I bought raffle tickets, whatever.

Host - Dane Higgins 51:07

You supported a trail organization and you happen to win a raffle.

Host - Josh Anderson 51:10

Yeah. So for the second time. And uh the third one I just bought from you. Yep. Um, and uh yeah, those are a lot of money. Yeah, yeah. So I I put down a lot of quick.

Host - Dane Higgins 51:23

I mean, if you look at that, that's three thousand minimum. Three almost almost thirty five hundred bucks of rock shock stuff that I have. Exactly. Okay, let's get back to Shimano. That's more than I'm spending on my Shimano stuff.

Four Japanese Business Tenets

Host - Josh Anderson 51:36

Shut up, dude. All right. Um There are some schools of thought, philosophies, methodologies in many of the Japanese companies that I've dealt with and in their culture that I think are contributing. Not the like for sure, this 70% dominance in the market um contributes to how they're performing. But also I think the way they do business is different. And there's four key things I want to talk about. Uh the first one's called Kaizen. Okay. You probably heard that term, because that's actually a term that we use in the United States as well. I have not heard it. So kaizon is effectively continuous improvement. Okay. So every worker at every station in every job is charged to cut to continually look for and propose small improvements to whatever it is they're responsible for. Okay. And you can think of it as there is no finish line, but they're making 1,000 tiny gains and changes in efficiency that compound day after day after day after year after year after month after month after decade after decade. Okay. So Kaizen is built into their culture that every single one of their employees is charged and feels obligated to find a better way to torque that bolt, to form that mold, to do their financial analysis, whatever. Okay. Right. So continuous improvement is like built into their culture. I would tell you that is not the same for American companies.

Host - Dane Higgins 53:18

Did do you want to hear a story, a real quick story? Go for it. So one of the stories that Shram tells me is that they have a program where if their employee comes up with a process that is better and they present it, they get awarded and they get perks and stuff like that. And so so I think there's a lot of companies that have similar ideas, you know. But I I feel like if in the Japanese culture, it's not just like you're born with that. Yeah, it's not just in your job. It's like that's how you live your life. That's who you are. Yeah, exactly.

Host - Josh Anderson 53:53

So some of these words I'm gonna screw up the Japanese words, but uh I'll try the next one. All right. Uh mono zukuri. Okay. Which is the art of making things. I thought that was like what you got if you kissed the wrong person. Yeah, also, I think it's a mononucleosis, but what but yeah, in this case, monozukuri. I just know it is mono. Yeah. The art of masing making things. Okay. So have you ever seen like Japanese steel or Japanese knives or anything like that? So like the like manufacturing in the Japanese culture is treated as a as a craft. Okay. It's it's not a cost center. Okay. Alright. Right? It's like like they take pride in their craft. Like Japanese steel is like is like amazing. Okay. Right? They refine it, they they just they they work for hours and hours and hours on this blade, and then they show you the blade, and like, look at this amazing blade, and it's and it's d m Damascus, and it's been folded and folded and treated and folded and treated and shaped and sharpened and folded and treated and shaped and sharpened, and you get some of the best swords ever. Yep. Or or blades ever. Just this whole Japanese culture around mono zukuri, the art of making things, manufacturing to them is a craft. Okay. It's it's not just a cost center. The third one I'm definitely gonna screw up, but Kiratsu, which is in simple terms, like interlocking business networks. And so like their supplier relationships are very long-term and very loyal. Okay. So with their suppliers, they're not just beating down their suppliers for the one that can give them the best nickel off the price. They establish long-term enduring relationships, and their manufacturer-supplier relationship is set up to be a win-win. If the prime manufacturer wins, the suppliers win. With those long-term relationships, you form strong bonds, and then you get the suppliers willing to invest their own money to the benefit of the prime. Okay. So just a different approach to supply chain management than we have in the States.

Host - Dane Higgins 56:06

Yeah, where sometimes supply chain management is just where can you get it the cheapest? Yes. Right? And skipping around.

Host - Josh Anderson 56:13

I go put out quotes, and whoever gives me the nickel off price, if they seem like a good supplier, I go to them. Yeah. Versus I've known this guy's family, and my family has known his family for generations.

Host - Dane Higgins 56:25

And they're a little bit more than this guy who just came to me down the street, but I have trust.

Host - Josh Anderson 56:30

But the but it's loyal, it's trust. I know what he gives me is going to be good. Yep. Yeah. It's not going to be fast.

Host - Dane Higgins 56:35

Yep. Yeah.

Host - Josh Anderson 56:35

Part of why they don't turn new products so quickly is because it's a slow moving machine. Yes. This whole thing is a slow move. Like Shimano is a slow, like Japanese companies I work with, Mitsubishi Heavy Industries and Suzuki Heavy Industries, they are slow moving machines. Yeah. But what they give me, yeah, works.

Host - Dane Higgins 56:52

Okay. Um and that and that describes Shimano almost perfectly, right? Right? It does. So okay.

Host - Josh Anderson 56:58

Then Genshi Genbutsu.

Host - Dane Higgins 57:00

Oh, yeah. I don't know. I think I know that guy.

Host - Josh Anderson 57:02

So the the translation here is go and see for yourself. Okay. Okay. So they're engineers, and not just they're engineers, but they are designed to go out and apply these products in real-world situations so they get real world experience with what's going on.

Host - Dane Higgins 57:21

So I can I break in with another little story. So um I worked at Fairwheel and we did a bunch of projects. Yep. And we would take them to the trade shows, and one of them was one of the first DI2 mountain groups. I remember this. And um the first year was no big deal because it was just it was the with the first generation of DI2, which was a I'm gonna screw this up. You guys took a road group and converted it to be mountain. To mountain, yeah. Yeah. And Jason did it, and I helped a little bit, but it was all the news. But that was the first one. The second one, so the first one uh was a full-wired DI2, which uh used it didn't use the uh like a CAN bus system, it used a I call it ones and zeros system. Basically, each wire would go to the individual component and they would turn it on and off. And so you could easily, pretty easily make different shifters and things like that. Yep. Um when they switched to ETube, uh, which Shimano did, they went to kind of a I don't know what they call it, but I call it a CAN bus system like cars use where one wire can transmit all of them. And I would explain to people that the uh the brains in all of these things, you teach them a language. So your derailer speaks Spanish, and so when that shifter is speaking Spanish, only the derailler knows what it's talking about. Yep. But the signal is going to the front derailler, and the signal is going to the other shifter and to the other parts and to the battery. And so if the right-hand shifter was meant to speak Spanish and the rear derailer spoke Spanish, they're the only ones that would talk, but that signal is going to everything. And then French was the left shifter and the front derailler, and then the battery spoke, I don't know, German. Portuguese. Portuguese, whatever. And so that's how a can bus, it's the same wire, but it's the language going through it.

Host - Josh Anderson 59:12

I have no idea where you're going with this, but keep going.

Host - Dane Higgins 59:15

So that was much harder to hack and to just make new buttons. Yeah. Because you now have to have a chip that's usually in that and in that component, that shifter or what have you. Translator. That that translates that language. And so that was much harder. And and Jason got uh some help from a guy who used to write, I think, apps for Apple. Uh maybe screwing this up a little bit, but he actually programmed this stuff and was able to do it. And then they took it to the next level and they programmed this new group that they were doing with this new ETube system to then sequentially shift. So he then programmed it to go through the gears and automatically change the front derail.

Host - Josh Anderson 59:56

This is back when we had two by whatever.

Host - Dane Higgins 59:57

This is all two by road at the time. Yep. And and road and mountain. Yep. And it would decide when to shift your front derail. Based on the gear combo. And they and they programmed it. And that people hated that, by the way. Uh they're still doing it, by the way. Are they really? By the way, that is actually what is almost. I don't know.

Host - Josh Anderson 1:00:13

Who the hell's riding a two by anymore on the road?

Host - Dane Higgins 1:00:16

Uh the road bikes. I know that. Yeah. And and so uh that system was so cool, and nobody did it. And I that year at Interbike, we just had engineer after engineer from Shimano coming over. Like, like they they were in line. There was a line of engineers. Shimano engineers. I'm not kidding. I'm not joking at all. And they were coming over and looking at the system.

Host - Josh Anderson 1:00:41

Genshi Gimbutsu.

Host - Dane Higgins 1:00:42

Yes. And they were looking at it and and seeing it in real life. And no, no doubt, it came out a few years. It took them a while to integrate into their system because of what the other things you're talking about. But they did that. Their systems now do that. Their systems have sequential, and you can have it to where you just hit your right shifter on your road bike, and it will automatically shift your front derailleur.

Host - Josh Anderson 1:01:04

Yeah.

Host - Dane Higgins 1:01:04

And then you can turn it on, turn it off, however you want to do it. But but that they that fairwheel did that first. So it's pretty crazy.

Host - Josh Anderson 1:01:13

So, you know, just to recap, those four things again, this is the you know, Japanese design philosophy, manufacturing philosophy, uh, business philosophy, this kaizon or continuous improvement, everyone's looking to make it better. The manuzukuri, the fact that manufacturing is a craft, and I kind of referenced or used the analogy of the you know, Japanese steel. Yeah. Um, Kiratsu, uh Kira Kieratsu, these interlacking business networks, their supplier relationships are long and loyal, uh uh, and not just based on the best price, and then Genshi, Genbutsu, go see it for yourself, you know, decisions made from direct observation versus reports or surveys.

Host - Dane Higgins 1:01:48

Yeah, that's awesome.

Host - Josh Anderson 1:01:49

Um, I think those are the those are you know part of what makes them go slow, um, part of why they don't release super fast, they wait to see what's gonna happen, and then they they're more confident. I don't know if my mic went out there for a second, but they're more confident um in uh you know in in the direction that they're going. They're they're guessing less. And I think probably and this would be interesting. I'd love to get your perspective on this. Here's my hypothesis. Okay. I know they've had a couple, but Shimano's probably had less failed attempts to put out new products than other companies. What do you think?

Host - Dane Higgins 1:02:31

I I don't know how to define that because it's pretty wide. Um I'll give you a couple points where they held on to things longer than other companies and they did not.

Host - Josh Anderson 1:02:42

That makes sense to me. Yeah.

Host - Dane Higgins 1:02:43

Based on how they operate. And that hurt them when when they were really when the new shiny thing came out. It's not even that, when the trend was clearly going one direction. Right? Uh no, uh two by uh they held on to two by in mountain bikes way longer than anyone else. Than than they should have. And it hurt them because they were so invested in it, you know, and that's I mean, you know, they're if they're slow to move and slow to change.

Host - Josh Anderson 1:03:10

Slow moving machine.

Host - Dane Higgins 1:03:11

Um, but then they kind of presented that they kept presenting it as if it was better and it wasn't. Yeah. And it was pretty clear. And then by the time they caught up, they looked slow moving and not with it. Yeah, right. And so their philosophy is kind of, you know, they're behind a lot. You know, they're not setting the standards. But then I think about our conversation with Nick um on Shimano when we talked about the the new DI2. And the amount of time they spent on that. The the the amount of time he spent taking broken derailers at the World Cup races and just analyzing them. Yeah. You know, and going through and figuring out where is the derailleur breaking, what's breaking, like like just forensically going through and figuring out what is so a Japanese way to approach things, right? And and like that drove them to design the derailleur the way that they did. Yeah. And that whole philosophy is not grounded in we're gonna copy somebody else or we're gonna do it like somebody else. They looked at a unique thing and and said, we want to fix this. This is what we really think is important. We're not worried about directing it, you know, connecting it directly to the frame. We're not worried about making it modular or anything. But what is it that is failing and how can we address that? And they and they did that. Yeah.

Host - Josh Anderson 1:04:29

So you know, it's interesting. They talk a lot in business about what they call first mover advantage. Uh-huh. Like if there's a new thing that comes out, the first company that gets out there, they have an advantage to take over part of the market faster. I honestly believe that's where Shram's at it right now. Yes, that's they they've benefited from their first mover advantage and they've offered things to the market that the market wants. Yeah. And Shimano being the smoke slow moving company, I believe over time, at least for that one thing, let's just talk like wireless, electric mountain bike component, you know, drivetrains, they will catch up. But then Shram's going to come out with something else.

Host - Dane Higgins 1:05:01

Yeah, it's true.

Host - Josh Anderson 1:05:01

And that'll be the first mover, and then they'll be on behind again.

Host - Dane Higgins 1:05:04

Shram's willing to take the risk and kind of go with stuff that's kind of trendy. Um, I remember uh uh when I sold Specialized, we were dealing with some bikes, and Specialized decided to spec this weird combination of a triple crank on the front and a short derailleur on the back. And it didn't work. You couldn't set the chain up properly, it just didn't work. And I remember talking to Specialized, and they're just like, well, this is how the pros are running it because it had a shorter cage and they were less likely to. And you couldn't set up the chain properly to do what's called cross-chaining, where the chain would be in the smallest and the smallest, or the biggest and the biggest, because it would get sloppy in the small, small, and it couldn't actually be in the big big. And so when they shipped the bikes, they would ship it with the chain measured f so that it could be in the big big. Uh because if you were in the big big, uh some people are not gonna know what I'm talking about, but Uh that means you have three chain rings up front, the big one up front and the big one in the back. The chain is the most extended. And then if you hit a big bump on a f on a full suspension, that cage length, the length of that cage, is taking up the movement in that suspension. And if the cage is shorter, you have less chain and less take up. And so if you go through a big bottom out uh and your chain chain's too short, it can rip the drailer off. And that's what we had happen. And so if we set them up for small small where they worked, in big big they'd rip the drailer off. And it just was goofy. And Shram is like, no, that's not how you do it. And Shimano, or I'm sorry, specialized is like, yeah, this is how the pros ride.

Host - Josh Anderson 1:06:41

Yep, yep, yep.

Host - Dane Higgins 1:06:41

And you should know how to shift. You shouldn't be crossed up. And and like that was a tough conversation.

Host - Josh Anderson 1:06:47

I remember it was like a technique that you had to learn like where to shift between the front and the back, and it was hard. And oh my god.

Host - Dane Higgins 1:06:54

Yep. Yeah.

Host - Josh Anderson 1:06:54

Um, okay, we are about at time here. Let me just recap like what we went through here. You know, bike companies are not making as much as you thought per bike.

Host - Dane Higgins 1:07:04

Um well looks and and and the conversation that everybody's having is how expensive stuff is. Yeah. And I think when when I go to McDonald's and I'm spending the same thing, 20 bucks on a value meal? Yeah, on a value meal, and I could have gone to a restaurant for about the same.

Host - Josh Anderson 1:07:19

Yeah.

Host - Dane Higgins 1:07:19

That blows my mind. And so that's that's what we're going through in the bike industry. It's the same thing. Same thing. Yeah.

Host - Josh Anderson 1:07:24

And the first thing Dane said when he looked at the uh when he looked at the breakout of costs. Yeah. He said, Oh, we should do an episode on how we can bring this down. Yeah. And I thought, Dane, if we figure that out, we're not putting that in a podcast episode.

Host - Dane Higgins 1:07:37

I I think they're I think they're I I what I said was we need to figure out a way that we can make money because we don't. Yeah. And that's a different topic, but different subject, but how can the bike industry get a little bit more healthy and not operate on these such small margins and and rely on the passion? And the problem with that is how would you do that and not raise the prices? Like that's it's mob it's impossible in my mind. And so every time somebody wants to lower the price, it's getting lowered, but the cost of the stuff is not going down. Yeah. And that's the tricky part.

Host - Josh Anderson 1:08:13

And there's not we hear this with $325 of margin on a $5,000 bike or a grand on a $15,000 bike, you know, there's not a lot of wiggle room for them to come down.

Host - Dane Higgins 1:08:23

No, it they have to be super creative. I I think I'm gonna put one thing out there. I think uh longer product lines. So one of the instead of the year, uh just I mean, it feels like they're just uh releasing new product so fast that the oldest.

Host - Josh Anderson 1:08:41

So be more like Shimano than like Shram?

Host - Dane Higgins 1:08:43

Absolutely. But but well, and look at some of the profitability there. I mean, uh, you know, if Shram did look at that philosophy and go, hey, you know what? Maybe we don't need a new product every single year. Right. Think about the tooling costs. Yes, exactly. And all that stuff. Exactly. Like Shimano didn't have to chit retool. Yeah, well, anytime you develop a product, you have a way high front end that you have to cover. And then if that product doesn't live a certain life, then you can't pay for it.

Host - Josh Anderson 1:09:12

I mean I mean we go back to the we we we talked about Shimano brakes versus haze brakes in a couple episodes ago. And those haze have been around for since 2018. That was my point. And we're just now getting excited about them. Yeah, yeah. And last night, Babyfoot, I'm on a ride with him, and he's like, I've got Dominions on both my bikes. Yes, yeah. Yeah, he was all excited about our episode. Yeah. With that episode, by the way, is performing well.

Host - Dane Higgins 1:09:30

Oh, that's good to hear. I I I thought it was cool because I mean everybody likes brakes. I was just selling some Shimano's today. Nice and letting the guy know about the new Shimano's and all the advantages. Yeah. Um, but yeah, I mean, I I think one of the product uh one of the things that the bike industry could do is to kind of take a chill pill and and maybe follow Shimano a little bit, you know, just calm down. Everybody's so I you know what it is, is they get you all hyped up, they get you all marketed and and and anxious to get it.

Host - Josh Anderson 1:09:59

Everyone wants to be that first mover.

Host - Dane Higgins 1:10:00

Yeah, to get what to get the newest and latest, greatest, and then honestly, it you know, if you could create a more profitable company and maybe not pump out stuff as much.

Host - Josh Anderson 1:10:11

Yeah, so instead of putting out new product, put that money towards efficiency, and split that efficiency gain a little bit to the price of the product, a little bit to your margin, yeah, bring in a little bit more profit, make it a little bit cheaper for us to buy the bikes, let the products live a little bit longer. Because let's let's admit it, dude. The fucking bikes are rad right now.

Host - Dane Higgins 1:10:30

They are, they are they're rad.

Host - Josh Anderson 1:10:31

There's not a bun, but I'm not super pissed at much. Besides the stupid dropper cable routing, which is retarded, other like whoever's working on dropper, don't listen to me.

Host - Dane Higgins 1:10:39

Fix that shit. Oh, head tube, uh, head tube routing in the city. Oh, don't even let's just stop that's that's just lunacy. Yes, stop it. Um but yeah, there's there's uh I think if the I I'd like to see, and you know, talking about changing the industry, I'd like to see more trickle down where uh let's say I let's give uh Shimano a little shout out, and they've got their S-Works bike. And maybe after two weeks.

Host - Josh Anderson 1:11:03

Specialized? Do you say you said Shimano?

Host - Dane Higgins 1:11:05

Oh, I'm sorry, yeah, specialized. I'm sorry, yeah. They both have S's in the beginning. Um so specialized has their S-Works frames, that's their premiere frame, their top line, it's the best carbon, and then they always have a lower end frame, and and that's kind of how they set up their product is like you got your cream of the crop, and then they they basically lower the cost of everything to get the bike more reasonable, yeah, you know, and you sacrifice some weight and things like that. Yeah, maybe ride quality, but maybe after three or four years of that S-Works, that gets sent down and you don't totally redesign the next level under it. Yeah. And and so then if you're getting the S Works, you're getting the top of the line cutting edge. But if you're getting the non-S Works, you're getting the old S Works.

Host - Josh Anderson 1:11:47

And Shimano does that with their products. They their their technology trickled down, and now like Dior is a fantastic group because it's like a it's like four four-year-old XT.

Host - Dane Higgins 1:11:56

Right.

Host - Josh Anderson 1:11:57

Like, I mean, it's like it's yeah, or may maybe not quite that, but but that's the the the at least that's directionally what you're saying. Yeah.

Host - Dane Higgins 1:12:02

I I think that is kind of I I think that needs to happen more often. Yeah. Um, so like Fox just released the new 38, so it's a brand new fork. It's got a slight change in the damper to create more small bump compliance, which is one of my big things. Concerns with Fox. Yeah, yeah. And then they put that glide core in, which they put in uh on the 36. Yeah. Uh good measurable differences, but they released it in March. And I'm like, I don't know when the new bikes are coming out, but any bike that has a 38 on it that's sitting on my floor now, now just got devalued. And that drives me a little nuts.

Host - Josh Anderson 1:12:46

You know what I mean? Yeah.

Host - Dane Higgins 1:12:47

What I what I would like to see is Fox be a little bit more aware of its brand partners and maybe release that product on the company's new bikes so that they're not, you know, sitting on a warehouse full of old old product, you know. And that's been a real problem. That is putting companies out of business.

Host - Josh Anderson 1:13:05

So it'd be interesting to look at Fox and study like how much their business is OEM work and how much is direct-to-consumer or or aftermarket.

Host - Dane Higgins 1:13:11

Oh, it's huge OEM. And and they really need those partners.

Host - Josh Anderson 1:13:14

I just don't know what the breakout is, like how much of it is.

Host - Dane Higgins 1:13:17

But they're they're pushing to because this uh you know that they do direct to consumer and because they're seeing high margins. I don't know. This is my theory.

Host - Josh Anderson 1:13:26

I mean, we could know. I could go look. Although I think we had a hard time uh isolating the financials for their bike industry or for their bike business, so I don't know that I could get really clean numbers there.

Host - Dane Higgins 1:13:36

I just I feel like the anytime they get drunk on that bigger margin from direct to consumer, they forget how that stuff affects and they they go after the margin rather than.

Host - Josh Anderson 1:13:46

Well, we talked about why it's not actually a bigger margin anymore.

Host - Dane Higgins 1:13:49

No, why it's not working, right? It's not, but they they they get drunk on it. Dude, the bean counters get drunk like when they see it. They just like Alright.

Host - Josh Anderson 1:13:56

We are way on a we are way down a rabbit hole. Sorry. But uh so so again, high confidence in the public information.

Host - Dane Higgins 1:14:04

Yeah, yeah.

Host - Josh Anderson 1:14:04

Moderately confident in the stuff that we kind of derived from the public information, like the bike breakouts that we did. Yeah, I didn't give you every component because we could argue I just gave you the big buckets. Yeah. Um, but one thing's for sure, they're not making the profit that you thought they were. No. Um, we went deep into Shimano, and I took this as an opportunity to like highlight part of the reason I've wanted to talk about this in the past. It's a love letter. It's a love letter.

Host - Dane Higgins 1:14:27

It's really a love letter.

Host - Josh Anderson 1:14:28

Kaizon, Manuzukuri, Kiratsu, and and Genshi, Genbutsu.

Host - Dane Higgins 1:14:33

I all all of them are awesome. I love those people. All good people.

Corrections Requests And Closing CTA

Host - Josh Anderson 1:14:38

All good people. Anyways, if you heard something that you know is wrong, let us know. Yeah. If you got a question or you want us to look up something different, no, it's you know, let us know. Yeah. Um, we would love it if you would leave us a review on Apple or Spotify, five-star review course. Yeah. You know, share with a friend. Share with your friends. You know, the podcast is growing uh steadily, and so thank you for that because some of you are sharing. Yeah, we'd love for it to grow more. We'd love to reach more people. Yeah. Um, we are making zero dollars on this and have no plans to make any of the money on this. Still pretty fun.

Host - Dane Higgins 1:15:10

It's it's fun. That's kind of like the bike industry. Nobody makes money but we're actually a passion project. Exactly. Yeah. All right.

Host - Josh Anderson 1:15:16

I appreciate you guys. Have a good day.